Diversified in nature, Pinnacle’s business involvement includes manufacturing, communication, hardware, software, technology, services and finance solutions. Within the diversity of its offering we add globally recognizable brands such as Microsoft, Dell, Hewlett-Packard, Intel and IBM (Lenovo) which are just a few names on a now exhaustive list, a number of which it is now an exclusive vendor for here in Africa.
In the last decade, Pinnacle has delivered a phenomenal all round performance with exponential growth in terms of turnover and headline earnings with operating profit margins doubling in what is considered to be a low margin industry. Headline earnings per share have increased at an average rate of 29.3% over the last five years, moving from 70c in 2008 to 175c in 2012, while the last two years of growth have been in the region 45% and 48%. The same timespan has witnessed an average return on equity of 40%, while turnover has more than doubled from R2.5 billion to nearly R6 billion.
A long term chart dating back to the turn of the millennium tells a relatively simple story about Pinnacle. What we can see is a share price that accelerates upwards at a somewhat relentless pace, depicting a 10c share pricing ten years ago move to an impressive current price level entrenched north of R23 a share. The upward trend finds constant reaffirmation year-on-year supported by strong fundamentals that gives little to no evidence of reversing at this point.
The rampant growth elevates the company from its humble penny stock origins into midcap territory as Pinnacle now boasts a market capitalization that has neared R4 billion. The increase in market capitalization now realizes increased liquidity in the company, allowing for greater institutional participation in the stock.
The Pinnacle share now trades at an attractive price to earnings multiple, currently in the vicinity of 12, a discount relative to our market in general. There is also a moderate yield offering of 1.5%, in terms of dividend, to combine with the continued potential for capital gains going forward.
Pinnacle has delivered historically on its advertised focus to increase shareholder returns through product selection and strategic value add acquisitions. As the company grows its local market share to significant proportions in its position as a distributor of leading technological brands, growth is likely to emerge as it continues on this course, acquiring additional relationships amid expansion across Africa. Unfortunately, Pinnacle’s share price offers very little in price corrections to afford an opportunity to find entry on weakness, but long term investing is less sensitive to timing and the potential for 15%-20% yearly returns going forward is an attractive offering.